Before the signing of the Oslo accords, two entities were the major sources of international aid for the West Bank and Gaza: the donors of the West and the Arab states. Most of these programs started or developed during the 1970s, and they were further expanded during the 1980s. Because of the lack of a Palestinian state entity-partner, the majority of the sums were channeled through PNGOs or INGOs. Although the stance of the donors during the pre-Oslo period is regarded by some analysts, such as Rex Brynen, as controversial and linked with phenomena, such as corruption, nationalism and factional rivalries, international aid effectively financed a series of programs in the sectors of agriculture, infrastructure, housing and education. It even developed a lot for American Aid.
The Oslo accords, officially signed on September 13, 1993, on the White House lawn, contained substantial provisions on economic matters and international aid: Annex IV of the Declaration of Principles (DoP) discusses regional cooperation and implicitly calls for major international aid efforts to help the Palestinians, Jordan, Israel and the entire region.
On October 1, 1993, the international donor community (nations and institutions) met in Washington to mobilize support for the peace process, and pledged to provide approximately $2.4 billion to the Palestinians over the course of the next five years. The international community's action was based on the premise that it was imperative to garner all financial resources needed to make the agreement successful, and with a full understanding that in order for the Accords to stand in the face of daily challenges on the ground, ordinary Palestinians needed to perceive positive change in their lives. Therefore, the donors had two major goals: to fuel Palestinian economic growth and to build public support for negotiations with Israel. According to Scott Lasensky, "throughout the follow-up talks to the DoP that produced the Gaza-Jericho Agreement (May 1994), the Early Empowerment Agreement (August 1994), the Interim Agreement (September 1995), and the Hebron Accord (January 1997), [...] economic aid hovered over the process and remained the single most critical external component buttressing the PNA."
Between 1993 and 1997 the PNA faced serious economic and financial problems. International aid prevented the collapse of the local economy, and contributed to the establishment of the Palestinian administration. Donors' pledges continued to increase regularly (their value had risen to approximately $3,420 million as of the end of October 1997) as a result of the faltering peace process, along with the increase in needs and the consequent increase in the assistance necessary for Palestinians to survive. Reality led, however, to a revision of the donors' priorities: Out of concern that the deteriorating economic conditions could result in a derailment of the peace process, donor support was redirected to finance continued budgetary shortfalls, housing programs and emergency employment creation. According to a more critical approach, international aid in the mid-1990s supported PNA's bureaucracy and belatedly promoted the centralization of political power, but in a way that did not enhance government capacity and harmed the PNGOs. In 1994–1995 problems of underfunding, inefficiency and poor aid coordination marked donors' activity, and led to tensions among the different aid bodies, and between the international community and the PNA. In 1996, the link between development assistance and the success of the peace process was made explicit by the President of the World Bank, James Wolfensohn, who stated: "The sense of urgency is clear. Peace will only be assured in that area if you can get jobs for those people."
After 1997, there was a reduction in the use of closure policy by Israel, which led to an employment growth and an expansion of the West Bank and Gaza economy. After the signing of the Wye River Memorandum, a new donors' conference was convened, and over $2 billion was pledged to the PNA for 1999–2003. Nevertheless, overall donor disbursements fell in 1998–2000, and the 1998 disbursements=to-commitments ratio was the lowest since 1994. As for international institutions, they began to play a bigger role in the international funding process, in spite of the decline in the absolute value of these institutions' total commitments. After 1997, the need for donor support for the current budget and employment generation programs receded due to the PA's improved fiscal performance, and attention was focused instead on infrastructures to the detriment of institution building. Donors' activity was also characterized by a decline in support for PNGOs, and by a preference to concessionary loans (instead of grants) with generous grace periods, long repayment periods and low interest rates
The second Intifada led to one of the deepest recessions the Palestinian economy experienced in modern history. In those two years, Palestinian real GDP per capita shrunk by almost 40 percent. The precipitator of this economic crisis was again a multi-faceted system of restrictions on the movement of goods and people designed to protect Israelis in Israel itself and in the settlements.
One of the many frustrations of the crisis was the erosion of the development effort financed by the international community, since the overwhelming emphasis in donor work was now directed towards mitigating the impact of the economic and social crisis. A collapse of the PNA was averted by emergency budget support from donor countries. Despite a significant increase in donor commitments in 2002 compared with 2001, commitments to infrastructure and capacity-building work with a medium-term focus continued to decline. In 2000, the ratio was approximately 7:1 in favor of development assistance. By 2002, the ratio had shifted to almost 5:1 in favor of emergency assistance.
The barrier route as of July 2006
Yasser Arafat's death in 2004 and Israel's unilateral disengagement from Gaza created new hopes to the donor community. In March 2005, the Quartet on the Middle East underscored the importance of development assistance, and urged the international donors community to support Palestinian institution building, without however ignoring budgetary support. The Quartet also urged Israel and the PNA to fulfill their commitments arising from the Road map for peace, and the international community "to review and energize current donor coordination structures [...] in order to increase their effectiveness." The international community's attempt in late 2005 to promote Palestinian economic recovery reflected a long-standing assumption that economic development is crucial to the peace process and to prevent backsliding into conflict. Although a mild positive growth returned in 2003 and 2005, this fragile recovery stalled as a result of the segmentation of the Gaza Strip, the stiff restrictions on movements of goods and people across the borders with Israel and Egypt, and the completion of the Israeli West Bank barrier. As the World Bank stressed in December 2005, "growth will not persist without good Palestinian governance, sound economic management and a continued relaxation of closure by GOI."
On January 25, 2006, Hamas won the Palestinian legislative elections; the Islamist organization assumed power in March 29, 2006, without accepting the terms and conditions set by the Quartet. Hamas' stance resulted in a near cessation of direct relations between most bilateral donors and the PNA, with only some multilateral agencies and a few donors continuing direct contact and project administration. Quartet's decision met the criticism of the Quartet's former envoy, James Wolfensohn, who characterized it "a misguided attempt to starve the Hamas-led Palestinians into submission," and of UN's Middle East former envoy, Alvaro de Soto. Because of the worsening human crisis, the EU proposed a plan to channel aid directly to the Palestinians, bypassing the Hamas-led PNA; the Quartet approved the proposal, despite the initial US reaction, and the EU set up a "temporary international mechanism" (TIM) to channel the money for an initial three-month period, which was later extended.Oxfam was one of the main critics of the EU TIM program arguing that "limited direct payments from the European Commission have failed to address this growing crisis."
The emergence of two rival governments in the West Bank and Gaza in June 2006 presented the international community with the prospect of shouldering a huge aid burden. The World Bank estimated that in 2008 PNA would need $1.2 billion in recurrent budget support, in addition to $300 million in development aid. The formation of the caretaker government in mid-2007 under Fayyad, and the resumption of aid have partially reversed the impacts of the aid boycott. Nevertheless, economic indicators have not changed considerably. For instance, because of the situation in Gaza, real GDP growth was estimated to be about -0,5% in 2007, and 0,8% in 2008.
In December 2007, during the Paris Donor Conference, which followed the Annapolis Conference, the international community pledged over $7.7 billion for 2008–2010 in support of the Palestinian Reform and Development Program (PRDP). Hamas, which was not invited to Paris, called the conference a "declaration of war" on it. In the beginning of 2008, The EU moved from the TIM mechanism to PEGASE, which provides channels for direct support to the PNA's Central Treasury Account in addition to the types of channels used for TIM. The World Bank also launched a trust fund that would provide support in the context of the PNA's 2008–2010 reform policy agenda. However, neither mechanism contains sufficient resources to cover the PNA's entire monthly needs, thus not allowing the PNA to plan expenditures beyond a two-month horizon.
The World Bank assesses that the PNA has made significant progress on implementing the reform agenda laid out in the PRDP, and re-establishing law and order; Gaza, however, remains outside of the reforms as Hamas controls security and the most important ministry positions there. Palestinian inter-factional tension continues in the West Bank and Gaza, with arrests of people and closures of NGOs by each side, resulting in a deterioration in the ability of civil society organizations to continue cater to vulnerable groups. Following the 2008–2009 Israel–Gaza conflict, an international conference took place in Sharm El-Sheikh, Egypt, where donors pledged almost $4.5 billion for the resonstruction of Gaza. These funds bypass Hamas, since the PNA, in collaboration with the donor community, has taken the leadership in delivering and distributing the assistance. India which is aspiring to be recognized as 'Globally respected power' has made concerted efforts in fostering better relations with PA. When PAP President Abbas visited New Delhi in 2008 he was offered a credit of US$ 20 million (Rs.900 million) by Indian Federal Government. India also continued to offer eight scholarships under ICCR Schemes to Palestinian students for higher studies in India, while also offering several slots for training courses under the ITEC Program.
The lion's share of the aid comes from the European Union and the United States. According to estimates made by the World Bank The Palestinian Authority received $525 million of international aid in the first half of 2010, $1.4 billion in 2009 and $1.8 billion in 2008. Foreign aid is the "main driver" of economic growth in the Palestinian territories. According to the International Monetary Fund, the unemployment rate has fallen as the economy of Gaza grew by 16% in the first half of 2010, almost twice as fast as the economy of the West Bank.
In July 2010, Germany has outlawed a major Turkish-German donor group, the Internationale Humanitaere Hilfsorganisation (IHH), unaffiliated to the Turkish: İnsani Yardım Vakfı (İHH) that sent the Mavi Mamara aid vessel, saying it has used donations to support projects in Gaza that are related to Hamas, which is considered by the European Union to be a terrorist organization, while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole."
In March 2011, there were threats to cut off aid for the PA if it continued to move forward on a unity government with Hamas, unless Hamas formally renounced violence, recognized Israel, and accepted previous Israel-Palestinian agreements. Azzam Ahmed, spokesman for Palestinian Authority President Mahmoud Abbas responded by stating that the PA was willing to give up financial aid in order to achieve unity, "Palestinians need American money, but if they use it as a way of pressuring us, we are ready to relinquish that aid."
Map of countries giving emergency aid to Gaza in 2009
According to the Development Assistance Committee, the main multilateral donors for the 2006–2007 period were UNRWA and the EU (through the European Commission); the main bilateral donors were the US, Japan, Canada and five European countries (Norway, Germany, Sweden, Spain and France). Since 1993 the European Commission and the EU member-states combined have been by far the largest aid contributor to the Palestinians. The Arab League states have also been substantial donors, notably through budgetary support to the PNA during the Second Intifada; they have been however criticized for not sufficiently financing the UNRWA and the PNA, and for balking at their pledges. After the 2006 Palestinian elections, the Arab countries tried to contribute to the payment of the Palestinian public servants' wages, bypassing the PNA; at the same time Arab funds were paid directly to Abbas' office for disbursement. During the Paris Conference, 11% of the pledges came from the US and Canada, 53% from Europe and 20% from the Arab countries.
Since 1993, a complex structure for donor coordination has been put in place in an effort to balance competing American and European positions, facilitate agenda-setting, reduce duplication, and foster synergies. The overall monitoring of the donors' activities was assigned to the Ad-Hoc Liaison Committee, which was established in November 1993, operates on the basis of consensus, and aims at promoting the dialogue between the partners of the "triangular partnership", namely the donors, Israel, and the PNA.
^Palestine Human Development Report (2004), 113. According to certain analyses, Palestinians are the largest per capita recipients of international development assistance in the world (Lasensky , 211, Lasensky-Grace ). Hever (2005), 13, 16, and (2006), 5, 10 refutes this assessment, arguing that Israel is the biggest recipient of total foreign aid in the world. Turner (2006), 747, underscores that the US provides Israel with annual bilateral funds of US$654 per person, which is more than double what the Palestinians receive in multilateral aid. According to Le More (2005), 982, "the United States has also provided [the PNA with] considerable funds, even if they are negligible compared to what it allocates bilaterally to Israel—which alone far exceeds the level of combined international assistance to the Palestinians."
^Since 1970 the role of the INGOs (and in particular of the Northern NGOs) in the delivery of aid was strengthened (Hanafi-Tabar , 35–36).
^For instance, Jordan's disengagement from its administrative role in the West Bank just after 1990, and the discontent of some Arab states-donors for the Palestine Liberation Organization's stance during the First Gulf War resulted in the Organization's almost complete breakdown (Brynen , 47–48).
^Before the signing ceremony, President Bill Clinton and Secretary of StateWarren Christopher spoke in very clear terms about America's commitment to provide economic support to the Palestinians. Israeli foreign minister Shimon Peres told Palestinian officials that he had already secured commitments from European countries to give them aid (Lasensky , 93 and , 219).
^Annex IV (paragraph 1) of the Declaration of Principles on Interim Self-Government Arrangements: "The two sides will cooperate in the context of the multilateral peace efforts in promoting a Development Program for the region, including the West Bank and the Gaza Strip, to be initiated by the G7. The parties will request the G7 to seek the participation in this program of other interested states, such as members of the Organisation for Economic Cooperation and Development, regional Arab states and institutions, as well as members of the private sector."
^22 donor states, major international financial institutions, and states neighboring the West Bank and Gaza (Frisch-Hoffnung , 1243).
^Aid Effectiveness (1999), 11; An Evaluation of Bank Assistance (2002), 2; Palestine Human Development Report (2004), 115
^Lasensky-Grace (2006). According to Yezid Sayigh (2007), 9, "starting with the first international donor conference in October 1993, foreign aidwas intended to demonstrate tangible peace dividends to the Palestinians as well as provide economic reconstruction and development to build public support for continued diplomacy.
^Poor economic performance in these years was the product of many factors, such as the low public investment and the contraction of the regional economy, and they were aggravated by the effects of Israeli closures, permits policies, and other complex restrictions on the movement of people and goods (Aid Effectiveness , 15; Brynen , 64; Le More , 984).
^An Evaluation of Bank Assistance (2002), 24; Rocard (1999), 28; Roy (1995), 74–75
^As USAID director Chris Crowley stated, "the political situation often drove the aid disbursement process (Lasensky , 96–97)."
^An Evaluation of Bank Assistance (2002), 25; Brynen-Awartani-Woodcraft (2000), 254
^According to Brynen (2005), 228, "closure [...] exacerbated the tendency of the PNA to use public sector employment as a tool of both political patronage and local job creation. The public sector payroll thus continued to expand at a rapid rate, growing from 9% of GDP in 1995 to 14% by 1997 [...] This sapped public funds needed for investment purposes and threatened to outstrip fiscal revenues."
^The Palestinians construed the shortage of aid funding as a form of punishment and as attempt of the donors to impose their own agenda, while US officials blamed "intra-PLO politics, the Palestinian leadership's resistance to donors' standards of accountability, and inexperienced [middle] management (Ball-Friedman-Rossiter , 256; Brynen , 114; Brynen-Awartani-Woodcraft , 222; Lasensky , 223; Roy , 74–75)."
^According to the World Bank, "the incompatibility of GOI's continuous movement proposal with donor and PA funding criteria, allied with GOI's commitment to protecting access to Israeli settlements, translate to a continuing high level of restriction on Palestinian movement throughout much of the West Bank (Overview , 6, 9)."
^According to the Quartet, "all members of the future Palestinian government must be committed to non-violence, recognition of Israel and acceptance of previous agreements and obligations, including the roadmap."
^Sayigh (2007), 17; Two Years after London (2007), 30
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